Stock and inventory finance: funding goods before they sell

Buying stock ties up cash well before it comes back in through sales, and for seasonal or fast-growing businesses, that gap can be the single biggest constraint on growth. Stock and inventory finance is designed specifically to bridge it.

Summary

• Stock finance releases cash against goods a business holds or is purchasing, allowing it to buy more stock without waiting for sales to convert to cash.
• It is usually offered alongside other facilities, such as invoice finance, rather than as a standalone product on its own.
• Lenders focus heavily on how easily the stock could be sold if things went wrong, so generic, in-demand goods are more fundable than bespoke or perishable items.
• It suits businesses with a clear buy-sell cycle, such as wholesalers, importers and retailers, more than service businesses.

What stock finance is

Stock, or inventory, finance provides funding secured against goods a business holds, whether raw materials, work in progress or finished products ready for sale. Rather than waiting for stock to be sold and the resulting invoice to be paid, a business can release a percentage of the stock's value as cash, use it to fund further purchases, meet payroll or cover overheads, and repay as sales convert to cash.

How it is usually structured

Pure standalone stock finance is less common in the UK market than it once was, because valuing and monitoring stock is more complex than monitoring a sales ledger. More often, stock finance is offered as a component of a wider facility, commonly alongside invoice finance, where a business can draw against both its unpaid invoices and a percentage of its eligible stock, giving a combined facility that reflects more of the working capital tied up in the business. Standalone stock finance does exist, typically from specialist lenders, and tends to focus on businesses with clearly identifiable, easily valued stock.

What makes stock "fundable"

Lenders look for stock that is generic rather than bespoke, since a specialist or made-to-order item has a narrower pool of potential buyers if it needs to be sold quickly. They also prefer stock with a reasonably stable, verifiable value, rather than goods that are highly seasonal, perishable or quick to become obsolete, such as fast-moving fashion or short-shelf-life food. Clear, accurate stock records and regular stocktakes matter too, since the lender needs to trust the figures it is advancing against, and most require some form of periodic reporting or audit.

How much can be released

Advances are typically a percentage of the stock's cost value, not its expected selling price, commonly somewhere in the range of 20% to 50% depending on the type of stock, how easily it could be sold, and the lender's confidence in your reporting. Raw materials and finished goods are generally viewed more favourably than work in progress, which is harder to value and sell if things go wrong.

Who it suits

Stock finance tends to suit wholesalers and distributors holding significant volumes of saleable goods, importers who need to pay suppliers, often before goods arrive, retailers building stock ahead of a peak trading period, and manufacturers with a clear, repeatable buy-make-sell cycle. It is less suited to service businesses with no physical stock, or businesses whose stock is highly bespoke or difficult to independently value.

Costs and monitoring

Expect a facility fee and a rate applied to the amount drawn, similar in structure to invoice finance, along with periodic stock reporting requirements and, for larger facilities, independent stock audits. These add a layer of administration compared with a straightforward term loan, which is one reason stock finance tends to suit businesses with reasonably established stock control processes already in place.

How it fits with other funding

Stock finance is rarely used in isolation. It often sits alongside invoice finance, so a business can draw against stock before it is sold and then against the resulting invoice once it is, creating a more continuous flow of working capital through the full sales cycle. Where stock needs are more occasional, a shorter-term unsecured loan or revenue-based finance may be simpler, albeit without the facility growing automatically with your stock levels.

Preparing to explore stock finance

Useful information includes recent stock valuations or stocktake records, details of your buy-sell cycle and typical lead times, and your existing facilities, particularly any invoice finance already in place, since stock finance is often added to an existing facility rather than arranged from scratch.

Getting an indicative view

Lending Box can point you towards lenders on our panel who offer stock finance, either standalone or combined with invoice finance, and give an early indication of what might be available. We are a broker, paid by the lender, not a lender ourselves, and figures are indicative only, subject to lender assessment and approval.